The 2017 tax overhaul imposed a $10,000 cap on the federal tax deduction for state and native taxes (referred to as the SALT cap). In response, many states have created pass-through entity taxes (PTETs), which might be obligatory or elective.
The IRS has acknowledged that the entity itself would due to this fact be entitled to deduct these taxes if they’re paid to the state or native jurisdiction, and that PTETs aren’t included when making use of the SALT cap to the person associate, LLC member or S company shareholder. So far, 35 states and one native authorities have created these PTETs as SALT cap workarounds.
We requested two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about states utilizing pass-through entity taxes to supply taxpayers a option to “work round” the $10,000 SALT cap.
Beneath is a abstract of the controversy that ensued between the 2 professors.
Their Votes:
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ByrnesTheir Causes:
Byrnes: These kind of entity-level taxes are utterly authorized. Even the IRS has blessed their use. The SALT cap itself unfairly targets Individuals who stay in high-tax states by making a cap that isn’t even usually related to taxpayers who stay in decrease tax states. That’s patently unfair, and it makes absolute sense that larger tax states ought to provide a workaround to keep away from having these taxpayers flee to low-tax states.
